The Success of Cash For Clunkers

by Conor Clarke

The Obama administration has decided to scrap Cash for Clunkers, the program that let you trade in old gas guzzlers for a federal voucher toward the purchase of a new fuel-efficient car, on Monday August 24.

The simple and important thing to remember is that the speed with which the program is shutting down is a testament to its success, not its failure. If the goal of a program is to boost consumer demand quickly -- as the goal of this program most certainly was -- then its good to have the allocated funds consumed quickly. Good stimulus is timely stimulus: We want the money pumping into the economy when economic activity is still below its potential. Economics stimulus is counterproductive when it comes too late.

This is separate from the question of whether or not we want an industry specific stimulus, or whether the Cash for Clunkers program was poorly targeted. (I think it was at least a little poorly targeted, since the vouchers were allocated largely on the basis of whether your clunker consumes less than 18 mpg and your new purchase consumes more -- such that trading in a 17-mpg car for a 19-mpg car would get you a voucher, but trading a 19-mpg for a 30-mpg one would not.) The fact that the money disappeared quickly is a really a reason to celebrate.

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